Dec. 8 (Bloomberg) -- Bank of America Corp., the largest
mortgage servicer, said lenders will meet with the overseer of
Fannie Mae and Freddie Mac to discuss last month’s revamp of the
federal Home Affordable Refinance Program, which originators
view as containing unexpected details that impair the effort.

The Federal Housing Finance Agency has “called us all back
next week to talk,” Vijay Lala, who manages HARP for Bank of
America as a mortgage-products executive, said yesterday.
“There were some things in there that we didn’t think were
going to happen, that are making it more operationally difficult
to implement. They threw some curveballs at us.”

President Barack Obama urged changes to the program for
borrowers with little or no home equity to spur more refinancing
as homeowners failed to take advantage of interest rates at
about record lows of less than 4 percent. HARP has helped less
than a quarter of the 4 million to 5 million borrowers projected
when Obama announced the program in February 2009, and delays
may restrict the push to bolster housing and consumer spending.

The HARP adjustments are removing restrictions on how much
borrowers can owe relative to home values, reducing risks to
lenders from faulty underwriting and cutting fees.

Bank of America’s reaction to the revisions may help
determine how successful the expansion becomes. The Charlotte,
North Carolina-based firm services 20 percent to 25 percent of
loans potentially in need of HARP based on their origination
dates and rates, Morgan Stanley estimates show.

Troubling Details

Details troubling to lenders may limit rather than
“derail” HARP, which is “overall a strong program,” Lala
said in a telephone interview. They include required
documentation of borrowers’ “passive” income, such as child
support, alimony or retirement pay, Lala said. For employed
borrowers, HARP guidelines call for lenders to verify just with
telephone calls that they have jobs. He didn’t name the other
lenders that will be part of the discussions.

The FHFA, lenders and others worked “very collaboratively
to remove the hurdles that we considered to be the most
prohibitive to borrower participation,” said Meg Burns, a
senior associate director at the agency. “We still believe that
what we’ve done together will help more borrowers to access this
program.”

The mortgage-bond market is signaling the effects of the
revamp will be limited. Fannie Mae securities backed by 30-year
loans with rates of about 6.5 percent have risen about one cent
on the dollar since Oct. 24 to more than 110 cents, according to
data compiled by Bloomberg. Refinancing repays investors faster
at 100 cents.

‘Take Some Time’

Under the revamp, Bank of America has already incorporated
into its lending the reduced fees at Fannie Mae and Freddie Mac
for riskier loans, before competitors, Lala said. It expects to
be ready within 30 to 45 days with processes for transferring
mortgage-insurance policies under the program and for loans
exceeding 125 percent of homes’ values.

At Wells Fargo & Co., it will “take some time to make some
necessary system changes,” said Vickee Adams, a spokeswoman for
the San Francisco-based bank. She declined to offer further
details or discuss Bank of America’s comments on lenders wanting
tweaks to HARP.

Wells Fargo, Bank of America and JPMorgan Chase & Co. are
the largest U.S. mortgage lenders.

Tom Kelly, a spokesman for New York-based JPMorgan,
declined to comment.

When the FHFA outlined the planned revisions on Oct. 24, it
said certain firms might start taking applications on Dec. 1
under rules reflecting some of them. Government-supported Fannie
Mae and Freddie Mac detailed the changes, some of which don’t
take effect until March or later, to lenders on Nov. 15.

More Complex

Freddie Mac changed its streamlined refinancing guidelines
for mortgages with loan-to-value ratios of less than 80 percent,
blocking consumers from qualifying if they owe more than their
properties’ values because of home equity debt and requiring
more documentation for other homeowners.

That will make it more complex for servicers to assess
Freddie Mac loans for HARP, and “now you’ve got different
guidelines from Fannie and Freddie when the intent was to align
the guidelines,” Lala said.

Freddie Mac’s program for mortgages with loan-to-value
ratios below 80 percent isn’t part of HARP, which itself is
offering “unprecedented access to refinancing,” said Brad
German, a spokesman for the Mclean, Virginia-based company.

When lenders meet with the FHFA, “one of the big topics
for discussion” will be the exclusion of situations involving a
“scheme or pattern of fraud” from relief on forced repurchases
of faulty mortgages, Lala said. “It’s vague and that’s why we
want some specifics in the contract language.”

Fraud Language

A document posted on Fannie Mae’s website says fraud “is a
misstatement, misrepresentation or omission that cannot be
corrected and that was relied upon by Fannie Mae to purchase the
mortgage being refinanced.” A scheme or pattern involves “two
or more mortgages and two or more perpetrators acting in common
effort.”

The document also says lenders should consider an
“unusually high” debt-to-income ratio as “an opportunity to
evaluate the individual borrower’s circumstances to determine
whether a refinance (as opposed to a modification) is the
appropriate option” while saying any lowering of payments is
sufficient to qualify borrowers.

Disputed Reports

Lala disputed reports by mortgage-bond analysts from Morgan
Stanley, Barclays Capital and Nomura Securities that Bank of
America trailed rivals Wells Fargo and JPMorgan in using HARP in
its earlier form. The lender is adding resources to departments
handling HARP loans in response to its expansion, he said,
saying it hasn’t yet determined the amount of workers needed.

High-rate loans serviced by the bank prepaid more slowly
than Wells Fargo-overseen loans since at least August 2010,
according to a Nov. 19 Nomura report. Morgan Stanley said this
week that prepayment speeds at Bank of America more recently
trailed behind JPMorgan.

While the bank did curb HARP lending earlier this year as a
surge in traditional refinancing strained its resources, it’s
proud of its total record, Lala said. “We did a lot of these
way early on” in 2009 while other lenders were “late to the
game,” he said. “You have a finite group of borrowers.”

The prepayment data also covers high-rate loans to
borrowers with 20 percent home equity, so isn’t only indicative
of HARP use, he added. Bank of America has originated about
200,000 HARP loans based on FHFA definitions, Lala said, or more
than 21 percent of the reported industry total of 928,600
through September. Wells Fargo has made about 290,000, Adams
said. Kelly declined to provide a number for JPMorgan.